Investing in PIPEs

These are interesting times for Private Investment in Public Equity (PIPE). Leveraging strong management experience and demonstrable underlying company value to effectively raise financing from private investors has become a matter of increasing importance to public companies. Meanwhile, some private investors are seeking to weigh in more liquid, low-risk public equity investments into their portfolios – provided that they can secure more significant positions of such equity at a price that is fixed and discounted to the otherwise publicly traded share price. By investing in PIPEs, private investors can acquire common or preferred stock at a set price (traditional PIPEs) or purchase convertible debt (structured PIPEs). Most PIPE investments are issued by small to medium sized public companies that seek efficient equity or debt financing.

PIPE investments have been around for many years, but it is only in the last few years that the PIPE market has seen higher volumes of issuers. Increased market size and diversification across industries has led to greater transparency – news sources, information distribution companies, conferences and databases keep watch on PIPE investment opportunities, participants, structures and processes. This makes PIPE investments a more accessible and investor-friendly pursuit than ever before.

PIPE investments are usually opened up to a smaller group of private investors during a limited time period. A good way to stay in the know of these sought-after offerings is to sign up with a credible information distribution company that will issue regular bulletins of relevant opportunities and proposals. Services such as those offered by Placementbase deliver ongoing information about private placements, without any sign up fee or ongoing membership charges. As an investor, you can use your membership to identify, review and participate in a variety of credible companies and financial structures – valuable opportunities that may otherwise not have been on your radar.

Any investing in PIPEs that investors pursue will always be made directly with the issuing company. Issuers that access the PIPE market come from a broad range of industries, including energy, technology or financial sectors. Discounts to the public share price can be anywhere from 10-25%, and since these investments are offered at a fixed price some investors see an opportunity to buy large positions.

When a company markets securities to the private or public sector, they also provide complex documentation to ensure they present all the risks involved. If you engage in private placement investments, it is important to always gain a solid understanding of the underlying company you are investing in by carefully analyzing all the documentation provided, from start to finish. Where you are interested in a company of a particular industry niche you may not be entirely familiar with, it is always wise to retain the advice of someone who does before you make your decisions.

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